WORKERS COMP REFORM: POLICY EASES COVERAGE CONFLICTS

A new workers compensation policy endorsement is making it easier for many residual market policyholders to ensure that all employees have workers comp coverage while traveling out of state.

However, state officials are finding it more challenging to do the same for voluntary market policyholders that face the problem.

Historically, the coverage issue emerged because most state workers comp laws allow employees injured on the job outside their companies' home state to elect to receive workers comp benefits under either state's system or sometimes from the state of hire. Not surprisingly, employees usually choose the state with the highest benefits.

That freedom created headaches and "unknown, uncovered and uncoverable exposures" for employers, insurers and agents, according to a proposed position paper drafted by representatives of the National Assn. of Insurance Commissioners and the International Assn. of Industrial Accident Boards & Commissions.

For example, an employer without broad enough coverage may have to defend or try to manage a claim itself if its workers comp insurer is not licensed where the injury occurred, though some insurers will indemnify the employer for the expense involved (BI, July 31, 1995).

In rare situations, an employer uninsured in the state of injury may face a tort suit because the exclusive remedy protection doesn't exist.

However, that happens "very rarely," said Stephanie Thompkins Ganey, director of medical management services for AIG Claims Services Inc. in New York.

Some insurers have found it impossible to directly represent policyholders if unlicensed where claims have been made and reimburse the employer instead. Others have been threatened with fines for trying to intervene where they aren't licensed.

The problems exist because a standard workers comp policy typically covers out-of-state travel for employees working temporarily in other states by providing what is known as "other states' coverage." The contract language in Part 3 extends coverage for an employer's liability to states other than the usual states in which the company does business, which are listed on the policy's declarations page in item 3.A.

"There would be no problem if every voluntary market insurer said all remaining states not listed in 3.A." are in the additional coverage portion, but that isn't what happens, said Eric G. Gustafson, chairman and principal of the Blake Insurance Agency Inc. in Portsmouth, N.H.

Mr. Gustafson is a former president and active committee member for the Independent Insurance Agents of America Inc., which has been working with the National Council on Compensation Insurance to develop a solution to the problem.

For example, most insurers exclude from the additional coverage section the six states with exclusive state workers compensation funds. Those states are Ohio, Nevada, North Dakota, Washington, West Virginia and Wyoming.

Premium fairness also is an issue. "An insurer would like to have the premium be commensurate with the benefits paid, both of which are based on the state of hire, where possible," said Michael Mayers, senior vp-risk management accounts with Wausau Insurance Cos. in Wausau, Wis.

Although covering traveling employees was not just a residual market problem, "it was exacerbated by the residual market," said Mr. Gustafson.

The residual market typically had more limitations on coverage for traveling employees than the voluntary market's policies.

The Boca Raton, Fla.-based NCCI developed the most recent solution by crafting clearer and broader coverage for employers that buy residual market coverage where the NCCI administers the residual market plan or the National Workers' Compensation Reinsurance Pool reinsures it. Residual market policyholders in 21 states plus the District of Columbia currently are eligible for the NCCI's broader coverage (see chart).

The changes, which the states ultimately approved with a general effective date of Feb. 1, 1997, replaced the Part 3 coverage that was available on the standard workers comp policy with new, limited coverage in all states, including those with exclusive state funds. In addition, the NCCI's residual market coverage was broadened to extend some coverage, without additional charge.

"The NCCI was very responsive to customer needs," said the IIAA's Mr. Gustafson.

Developing a solution to this issue for policyholders in the voluntary market, however, appears to be more of a challenge. No progress has been made in recent months on a general position paper developed by the NAIC and IAIABC.

Their proposal calls for state lawmakers to adopt reciprocal laws similar to ones enacted in Maine and New Hampshire.

Such laws essentially require injured employees to receive the benefits of the state of "regular" employment, regardless of where the injury occurred. They also grant exclusive remedy protection to an employer with valid insurance in its home state.

South Dakota Director of Insurance Darla L. Lyon, who chairs two NAIC groups on the issue, said insurance regulators have been waiting for state workers comp administrators to provide additional comments.

However, additional comment is not expected from the IAIABC, according to a recent interview with President Michael LeFever.

"It's not on our immediate agenda," said Mr. LeFever, executive director of the South Carolina Workers' Compensation Commission in Columbia. "As an organization, we are not about telling states what kind of workers compensation systems they should have."

That approach is echoed in the IAIABC's rewrite of its bylaws a few years ago.

The organization dropped its support for the 19 essential recommendations made in 1972 by the National Commission on Workers Compensation, he said.

One possible cause for the IAIABC's silence may be criticism from the AFL-CIO on how regulators are handling this issue.

The labor union "strongly objects" to eliminating a traveling employee's freedom to choose which state's benefits to accept, said James Ellenberger, assistant director of the AFL-CIO's department of occupational safety and health in Washington. That is in "direct conflict" with standards previously adopted by the IAIABC and the national commission, he said.

To resolve the impasse, Ms. Lyon plans to ask the NAIC Commercial Lines-Property/Casualty Insurance Committee to receive the position paper at its December meeting.

It remains to be seen, though, how the NAIC recommendations will work.

The Maine-style legislation "is expected to receive serious consideration in a number of states-particularly in the Northeast-during the next legislative cycle," said David Turner, the IIAA's assistant vp-state government affairs in Washington.

However, "a statutory approach" won't work conceptually unless all states adopt the same legislation, and that won't happen, said Bruce C. Wood, assistant general counsel of the American Insurance Assn. in Washington.